MeenaKrishnamsetty

MattDoiron

T. Boone Pickens isn't a hedge fund manager, but the billionaire oil man invests considerable capital in energy stocks and reports his positions on quarterly 13F filings. These filings, like those for hedge funds and other major investors, disclose long equity positions in U.S. stocks as of the end of the quarter. By analyzing 13Fs it is possible to develop profitable investment strategies. For example, we have found that the most popular small cap stocks among hedge funds produce an excess return of 18 percentage points per year on average (read more about our small cap strategy). Retail investors can also dig into individual filings to see what stocks major market players were buying. We looked through Pickens' filing (see the full list of his stock picks and compared it with the one from the end of September; here are his five largest new stock picks:

Marathon Oil
MRO, -1.21%
was the largest new holding reported on the 13F with a position of over 180,000 shares. Marathon is a $23 billion market cap oil and gas company, which places its valuation at 15 times trailing earnings. Its net income fell 41% last quarter compared with the fourth quarter of 2011 despite a double-digit percentage increase in revenue, though analysts see earnings coming back in the next couple of years. Billionaire Ken Griffin's Citadel Investment Group more than doubled the size of its own position in Marathon last quarter to a total of 8.7 million shares (check out more stocks Griffin was buying).

Pickens also liked Newfield Exploration
NFX, -0.26%
an exploration and production company with oil and gas assets in the onshore U.S, the Gulf of Mexico, and offshore locations in Asia. He bought over 210,000 shares of the stock. The stock price is down 34% in the last year as financial performance has been poor, but Wall Street analysts are bullish: the forward P/E, based on expected results for 2014, is only 8 and the five-year PEG ratio is 0.7. Caxton Associates, managed by billionaire Bruce Kovner, also initiated a position in Newfield (find Kovner's favorite stocks).

The 13F reported a new position of a little over 60,000 shares of oil major Occidental Petroleum
OXY, -1.32%
Occidental made our list of the most popular energy stocks among hedge funds for the fourth quarter of 2012 (see more energy stocks hedge funds loved). It too has been impacted by lower margins, with earnings down sharply in Q4 from their levels in the same period in the previous year even though sales actually increased slightly. The stock carries trailing and forward P/E multiples of 14 and 10, respectively- this makes it at least as expensive as market leader Exxon Mobil
XOM, -0.74%

Weatherford International
WFT, -1.99%
a $9.1 billion market cap oil and gas equipment and services company, was another of Pickens' new stock picks. Because much of the demand for equipment is tied to drilling activity, Weatherford's stock price is sensitive to market conditions with a beta of 2.2. However, it has fallen 28% against a rising market in the last year as earnings have tumbled. Consensus for 2013 places the current-year P/E at 12. Billionaire Jeffrey Vinik was also buying Weatherford shares between October and December (research more stocks Vinik owned).

One company which is moving into the oil business through a pair of related acquisitions is Freeport-McMoRan Copper & Gold
FCX, -2.22%
and that stock was the fifth largest new holding for Pickens. The market has reacted quite negatively to the acquisition news- in addition to Freeport-McMoRan being treasured as a barometer of copper demand, the acquisitions came at large premiums to where the target companies had been trading. While we didn't like the deal it is possible the market has driven down the stock price to value levels. Billionaire John Paulson's Paulson & Co. reported a large position in Freeport-McMoRan at the end of December (find more stocks Paulson was buying).

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